Wells Fargo & Co., the market leader in reverse mortgages, is ramping up marketing of the products this year with a national television advertising campaign begun in the first quarter.
The $595 billion-asset company has about 800 loan consultants assigned to the business and is hiring more, said John Mlekush, market growth and development manager for senior-citizen products in Wells' home mortgage division.
The San Francisco banking company has vowed to take market share in the mortgage sector as others retreat and says it believes reverse mortgages, where it holds about a 17% market share, are a bright spot in the faltering housing market.
Wells views reverse mortgages, which target senior citizens who have built up equity in their homes, as relatively low-risk since more than 90% of the loans are insured by the Federal Housing Administration.
These customers' demand for credit, despite the mortgage industry's overall woes, continues to be strong because the population is aging and more people are seeking ways to pay for retirement as food and fuel costs rise and other sources of credit become more difficult to tap.
Wells declined to specify the dollar value of its reverse mortgage portfolio, but it serviced more than 23,000 reverse mortgages in 2007, a nearly eightfold increase from 2002.
"At the end of the day, more seniors and elder baby boomers are seeing that the traditional retirement is increasingly untenable" because of rising costs and now a slowing economy, Mr. Mlekush said in an interview Monday.
"They need to turn to another source for their retirement needs," he said, "and a reverse mortgage, for many, is helping meet those needs."
Growth in reverse mortgages, however, was flat in 2007, owing to uncertainty about anything tied to housing amid the mortgage meltdown in the year's second half. And as home values declined in some markets, the equity that senior citizens could tap through a reverse mortgage fell, cutting into demand.
But Mr. Mlekush said interest in the loans remains strong and is picking up again this year as Wells and other lenders more aggressively market the products as separate from traditional home loans. "The reverse mortgage industry is by no means unaffected by declining home values," he said. "But there is enormous untapped opportunity out there."
The National Reverse Mortgage Lenders Association says elderly homeowners in the United States have more than $4 trillion of home equity and about 1% of this equity has been used to get a reverse mortgage.
More than 35 million Americans are older than 62, according to the Census Bureau, and as baby boomers enter their 60s, this group will balloon.
About 107,000 reverse mortgages were originated last year nationwide, a tenfold increase from 2000, according to the FHA.
Wells is not alone in recognizing this. The company, which started its reverse mortgage arm in the mid-1990s, faces increased competition as more lenders look for ways to make up for the collapse of subprime lending.
For example, WSFS Financial Corp. in Wilmington, Del., recently bought a 51% stake in 1st Reverse Financial Services LLC in Westmont, Ill., aiming to become a nationwide player in the business. (See story
Among larger companies, if Charlotte-based Bank of America Corp., which entered the reverse mortgage arena in 2006, closes its deal for Countrywide Financial Corp. in the third quarter as planned, it will solidify its position as the nation's third-largest reverse mortgage lender, according to federal data. The deal for the Calabasas, Calif., mortgage lender is on track to close next quarter, B of A reiterated Tuesday.
The latest Department of Housing and Urban Development rankings do not account for B of A's 2007 purchase of Reverse Mortgage of America, a division of Seattle Mortgage Co., but based on 2007 HUD data, B of A and Countrywide were roughly tied for third place last year.
B of A has been tight-lipped about its Countrywide dealings, saying it is premature to discuss individual business lines before the deal closes. But Colin McCormick, the company's senior vice president overseeing reverse mortgages, says his division grew steadily in 2007 and will continue to expand this year. He declined to specify loan totals or staffing levels but said B of A is hiring reverse mortgage specialists.
"We see this as a great opportunity now but even more so in the future with the aging of the baby boomers," he said in an interview Tuesday.
Mr. McCormick said he expects that increasingly more financial services companies — large and small — will start selling reverse mortgages in the next several years.
"But I feel we are extremely well-positioned," he said.
Financial Freedom, a subsidiary of Pasadena, Calif.-based IndyMac Bancorp Inc., has specialized in reverse mortgages for 11 years and ranks behind only Wells, with a 7% market share, according to 2007 HUD data.
Michelle Minier, Financial Freedom's chief executive officer, said plenty of room exists for growth even if the field gets more crowded.
The senior citizen population is not only growing but also becoming more long-lived, she said, with the attendant medical and drug costs that create cash needs a reverse mortgage can help satisfy.
Financial Freedom services about $19 billion of outstanding loan balances, Ms. Minier said in an interview Tuesday.
"Suffice it to say we expect a 20 to 25% annualized growth rate in" originations this year, she said.
